Losses appear to be on the rise at Splash Beverage Group, Inc. (NYSE:SBEV).
This maker of alcoholic and non-alcoholic beverages seems likely to soon do another capital raise – even though the company raised $8.1 million in February through its shelf registration statement.
Due to its asset-light business model, Splash (NYSE:SBEV) could run out of money before the end of September of this year.
A Closer Look at What’s Happening with Splash Beverages
Splash Beverage (NYSE:SBEV) provides its products through traditional and online stores as well as directly to consumers. It specializes in acquiring and growing underappreciated beverage brands.
The business’s Qplash vertically integrated B2B and B2C e-commerce distribution platform offers goods on both Shopify (NYSE:SHOP) and Amazon (NASDAQ:AMZN). Four products presently make up Splash’s portfolio: Pulpoloco, TapouT (high-performance sports beverages), Copa Di Vino (premium wine by the glass), and Salt Tequila (blanco agave tequila) (Spanish sangria).
Splash Beverage (NYSE:SBEV) announced 12 distribution agreements in Q1 2022 alone with the sole purpose of increasing sales. But given that e-commerce sales increased by 86% to $2.45 million during that time, they appear to be their strength.
Investors might be disappointed to learn that the company’s gross profit margin dropped to 20.4% in Q1 2022 from 23.6% a year earlier, suggesting that the margins for online sales are thin.
Additionally, as costs for sales and marketing increased, the loss from operations increased to $5.68 million, up 25% from the previous year. It appears that every dollar spent on marketing generated around just $3 in incremental sales.
Thin Margins Causing Problems for Splash Beverages
According to the $4.68 million in net cash utilized for operating activities in the first quarter of 2022, the $8.1 million raised in February will be spent in less than 6 months. Splash Beverage (NYSE:SBEV) expects to report second-quarter earnings on or about August 15.
Turning to the balance sheet, Splash had $8.5 million in cash as of June. The acquisition of an 80% ownership in Pulpoloco Sangria is another event that is expected to hasten the cash burn.
In light of the fact that this deal was first announced in June and is now anticipated to be finished by the end of August, another capital increase may now be imminent.
Given that Splash Beverage (NYSE:SBEV) is now only a Pulpoloco distributor and that ownership of the manufacturing company should enable it to increase margins through vertical integration as well as increased sales, depending on the price paid, this could be a decent transaction. The sole US importer of Pulpoloco at the present is Splash Beverage.
Splash is now losing nearly $3 for every $2 in sales in a competitive industry, so it appears that any synergies from the acquisition of Pulpoloco Sangria will be negligible in the big picture.
Since Splash Beverage’s (NYSE:SBEV) margins are so far below what are required for the business to be profitable, it calls into question the company’s business strategy.
Splash Beverage’s Future Outlook
The most likely scenario for the foreseeable future is that operating losses continue to rise while revenues continue to rise as a result of new distribution agreements and rising marketing costs. This makes a fresh capital raise and additional equity dilution imminently probable.
In light of all of this, it might be advisable for risk-averse investors to steer clear of Splash Beverage (NYSE:SBEV) for the time being. If you have a high risk tolerance, it may be worthwhile to purchase a modest number of February put options with a $1.00 strike price as they are now trading at just $0.10.
Featured Image: Depositphotos © Danaichidsin
